Contingent Liability
Definition
A possible obligation that depends on an uncertain future event, such as a pending lawsuit or guarantee. It is disclosed in the notes rather than recorded, unless payment becomes probable and measurable.
Related Terms in Core Accounting
Provision for Doubtful Debts
An estimate of receivables unlikely to be collected, charged as an expense and set against the receivables balance. It applies the prudence principle so assets and profit are not overstated.
Capital Reserve
A reserve created from capital profits — such as gains on sale of fixed assets or premium on shares — rather than from trading profit. It is generally not available for distribution as dividends.
Revaluation Reserve
A reserve recording the increase in the carrying value of an asset when it is revalued upward. It is part of equity and is not a realised profit until the asset is sold.
Depreciation vs Amortization
Both spread an asset's cost over its useful life, but depreciation applies to tangible assets like equipment, while amortization applies to intangible assets like patents and to loan principal repayment.
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